New Venture 2

7/31/2019 New Venture 2

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New VentureSources of Finance

Patent in New Ventures

Presented By:

Praneet Raj

Mukesh SinghAmit Shukla

vivek jain


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New Ventures

-An undertaking that is dangerous, daring, or of

uncertain outcome.

Framework of the New Ventures

Individuals are people involved in starting a new

organization;

Organization is the kind of firm that is started;

Environment is the situation surrounding and

influencing the new organization;

New venture process is the actions undertaken by

the individuals to start the venture.


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Starting a New Venture

New Idea Capital


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The hardest part of starting a business israising the money to get going.

The entrepreneur might have a great idea and

clear idea of how to turn it into a successfulbusiness.

However, if sufficient finance cant be raised,

it is unlikely that the business will get off theground.


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Raising finance for start-up requires careful

planning. The entrepreneur needs to decide:

How much finance is required?

When and how long the finance is needed for?

What security (if any) can be provided?

Whether the entrepreneur is prepared to give up

some control (ownership) of the start-up in returnfor investment?


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The finance needs of a start-up should takeaccount of these key areas:

Set-up costs (the costs that are incurred before the

business starts to trade) Starting investment in capacity (the fixed assets that

the business needs before it can begin to trade)

Working capital (the stocks needed by the businesse.g. r raw materials + allowance for amounts that willbe owed by customers once sales begin)

Growth and development (e.g. extra investment incapacity)


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Sources of finance

Finance sources may be internal or external, butthey may also be short, medium or long term:

Short Term: Finance the business for up to 1year.

Medium Term: Finance the business for up to

5 years Long term: Finance the business for more than

5 years.


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Choosing a source of finance

Legal Structure PLCs and LTDs can sell

shares, Sole Traders and Partnerships cannot

The use of the finance large expensive

machinery will require a long term source,

paying off an outstanding account will only

require a short term source


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The amount required The larger the sum,the less likely the owners are to be able toraise the money internally. However, lenders

often want to see that the borrower is alsotaking a risk so may be a combination.

Profit levels The higher the profits the moremoney to use from internally. A firm with lowprofits (which needs the money the most!)will find external sources hard to find.


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Level of Risk A risky enterprise will find itharder to raise capital, although venturecapital may be available. May have to rely on

personal sources. Views of the owners May be reluctant to

lose control of a firm, especially a family firmand thus reject shares and venture capital.However, some may welcome the advice aventure capitalist can give.


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Internal Sources of Finance and

Growth

Organic growth growth generated throughthe development and expansion of thebusiness itself. Can be achieved through:

Generating increasing sales increasingrevenue to impact on overall profit levels

Use of retained profit used to reinvest in the

business Sale of assets can be a double edged sword

reduces capacity?


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External Sources of Finance

Long Term may be paid back after many

years or not at all!

Short Term used to cover fluctuations in

cash flow

Inorganic Growth growth generated by

acquisition


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SOURCES OF

FINANCE

SPONTANEOUS

SOURCES

NEGOTIATED

SOURCES.

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Spontaneous finance: Finance which naturallyarises in the course of business is called asspontaneous financing.Trade creditors, credit from employees, creditfrom suppliers of services etc are the examples ofspontaneous financing.

Negotiated financing: Financing which has to benegotiated with lenders, say commercial banks,financial institutions, general public are called asnegotiated financing.14


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Short term sources of finance

Short term financing is essential to providecapital deficit businesses funds for short term

period of a year or less. These funds are usually

for businesses to run their day-today operations

including payment of wages to employees,

inventory ordering and supplies .

These are the main short term sources of finance:-

Bank overdraft , trade credit , credit card , and

short term bank loans etc.

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Public deposit

Business firm are raising short-term finance from

their member , directors and the general public.

Bills discounting

The commercial banks advance to the borrower bydiscounting his bill.

Short-term loansThe bankers makes a lump-sum payment to the

borrower or credit his deposit account with the

money advanced..16

EXAMPLE OF LONG TERM AND SHORT TERM


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EXAMPLE OF LONG TERM AND SHORT TERM

FINANCE :-

STANDARD CHARTED BANK MAHINDRA FINANCE

1.Equity Capital= 58% Equity Capital=42%

2.Internal Accruals (Reserve &

Surplus)= 24%

Internal Accruals (Reserve &

Surplus)= 12%

3.Debentures (Bond)= 20% Debentures (Bond)= 33%

4.Term Loans (Long Term)= 8% Term Loans (Long & Short Term)=

13%

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External sources

Loan capital

This can take several forms, but the most

common are a bank loan or bank overdraft.


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Bank Loan

A bank loan provides a longer-term kind of financefor a start-up, with the bank stating the fixedperiod over which the loan is provided (e.g. 5years), the rate of interest and the timing and

amount of repayments. The bank will usually require that the start-up

provide some security for the loan, although thissecurity normally comes in the form of personal

guarantees provided by the entrepreneur. Bank loans are good for financing investment in

fixed assets and are generally at a lower rate ofinterest than a bank overdraft.


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Bank Overdraft

A bank overdraft is a more short-term kind of financewhich is also widely used by start-ups and smallbusinesses.

An overdraft is really a loan facility the bank lets thebusiness owe it money when the bank balance goesbelow zero, in return for charging a high rate of interest.

As a result, an overdraft is a flexible source of finance, inthe sense that it is only used when needed.

Bank overdrafts are excellent for helping a business handleseasonal fluctuations in cash flow or when the businessruns into short-term cash flow problems (e.g. a majorcustomer fails to pay on time).


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But friends and family are still the best source forboth loans and equity deals.

They are typically less stringent regarding thecredit and their expected return on investment.

One caveat: structure the deal with the samelegal rigor you would with anyone else or it maycreate problems down the road when you lookfor additional financing.

Prepare a business plan and formal documents--you'll both feel better, and it's good practice forlater.


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Business Angels

Business angels are the other main kind of external investor in a start-up company.

Business angels are professional investors who typically invest 10k -750k.

They prefer to invest in businesses with high growth prospects.

Angels tend to have made their money by setting up and selling theirown business in other words they have proven entrepreneurialexpertise.

In addition to their money, Angels often make their own skills,experience and contacts available to the company.

Getting the backing of an Angel can be a significant advantage to astart-up, although the entrepreneur needs to accept a loss of controlover the business.

Angels range from professionals, such as doctors and lawyers, tosuccessful entrepreneurs.


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Venture Capital

We also see Venture Capital mentioned as a source of finance

for start-ups.But venture capital is a specific kind of shareinvestment that is made by funds managed by professional

investors.

Venture capitalists rarely invest in genuine start-ups or small

businesses (their minimum investment is usually over 1m,often much more).

They prefer to invest in businesses which have established

themselves. Another term you may here is private equity

this is just another term for venture capital.

A start-up is much more likely to receive

investment from a business angel than a

venture capitalist.


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Private Lenders

Private lending represents a viable alternative

when the bank says "no".

Private lenders look for the same information

and will conduct similar due diligence as the

banks.

But they typically specialized in an industry

and are more willing to take on higher-risk

loans if they see the potential.


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Internal SourcesPERSONAL SOURCES

Savings and other nest-eggs An entrepreneur will often invest personal cash balances

into a start-up.

This is a cheap form of finance and it is readily available.

Often the decision to start a business is prompted by achange in the personal circumstances of the entrepreneure.g. redundancy or an inheritance.

Investing personal savings maximises the control theentrepreneur keeps over the business.

It is also a strong signal of commitment to outside investorsor providers of finance.


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Re-mortgaging is the most popular way of raisingloan-related capital for a start-up. The way thisworks is simple.

The entrepreneur takes out a second or largermortgage on a private property and then investssome or all of this money into the business.

The use of mortgaging like this provides access torelatively low-cost finance, although the risk is

that, if the business fails, then the property willbe lost too. .


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Credit cards

This is a surprisingly popular way of financing a start-up. Infact, the use of credit cards is the most common source offinance amongst small businesses.

Credit cards are a great tool for cash flow management,assuming you use them just for that and not for long-termfinancing.

Keep one or two cards with no balance on it and pay it offevery month to give yourself a 30 to 60 day float with nointerest.

And the low introductory rates on some cards make themsome of the cheapest money around. Managed well,they're extremely effective; managed poorly, they'reextremely expensive.


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Retained profits


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Share capital invested by the founder

The founding entrepreneur (/s) may decide to

invest in the share capital of a company, founded

for the purpose of forming the start-up. This is a common method of financing a start-up.

The founder provides all the share capital of the

company, retaining 100% control over thebusiness.


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Patents

Value of Patents in

Venture CapitalInvestment


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Why Patent

There are an estimated 600,000 new

companies founded each year, and many with

aspirations to be the next Google.

These young tech-centric companies are really

new ventures that often have new ideas and

no way to demonstrate their worth to

investors.


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To become one of the great technological andbusiness success stories, it takes more than just agreat idea and hard work.

It takes the ability to create a compelling value

proposition to customers and investors alike. Patents can be an important part of that value

proposition, especially to investors.

There are few things more persuasive for acompany that has a few great ideas than to showpotential investors tangible proof of the newventures intellectual prowess.


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Investors are faced with considerable uncertainty andtherefore rely on patents as signals when trying toassess the prospects of potential portfolio companies.

VCs pay attention to patent quality, financing those

ventures faster which later turn out to have high-quality patents. Patent oppositions increase thelikelihood of receiving VC, but ultimate grant decisionsdo not spur VC financing, presumably because they areanticipated.

The process of patenting generates signals which helpto overcome the liabilities of newness faced by newventures.

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New Venture 2

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